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Mis-declared cargo

Much has been written on this topic1and we do not wish to discuss the ground already covered. We would wish to instead set our thoughts on this subject to see whether a solution can be indeed found to avoid or minimize the carriage of mis-declared cargo.

We have noticed the positive effect of the Verified Gross Mass (VGM) requirements under the Safety of Life at Sea (SOLAS) Convention2in that generally Shippers declare the correct weights of the cargo to the Terminal / Vessel Operator. However, the VGM requirement do not require the Shipper to declare the details of the cargo and therefore we have seen mis-declarations with respect to cargo. It therefore appears to us that if the VGM requirements are broadened to include requirements that the cargo details be declared, this may then deter Shippers from mis-declaring cargo details (say dangerous or contraband cargo).

Mis-declaration of cargo was discussed during one of the sessions at the Asian Maritime Law & Insurance Conference held at Singapore on 24/25 Oct 2018. The comments made during the session were that dangerous cargo were deliberately mis-declared to avoid DG Surcharges charged for the carriage of such goods. The reason for avoiding such surcharges was that cargoes such as Calcium Hypochlorite are of low value such that any addition of surcharges would make it unviable to export. One of the suggestions made during the discussions was whether removal of the DG surcharges would change the scenario given that there would then be no incentive to mis-declare the cargo. The obvious points which come to our mind is that removal of DG surcharges may mean that the additional costs for stowage of DG cargo would have to be borne by the other cargo interests. We do not believe that other cargo interests would welcome addition of costs passed on to facilitate the shipment of DG cargo. The other issue which was raised is that some Carriers / Vessels did not wish to carry DG cargo at all or were unable to carry some of the DG cargo. In this case, removal of the DG surcharges would make no difference and mis-declaration would continue.

With respect to cargoes known to be DG, it would not be very difficult to ascertain both the production and consumption areas (for instance, Calcium Hypochlorite). This question is whether additional checks could be conducted as a matter of practice to ensure that DG cargoes are not shipped as mis-declared general cargoes. We believe that the costs of these additional checks by way seeking complete details of the cargo at the time of booking (instead of cargo being stated simply as General Cargo) together with the party’s background would be minor compared to the effect of loading mis-declared DG cargoes.We had earlier written that it is good practice to conduct a background search with your counter parties to avoid rude surprises. In addition, we would suggest that the background search be repeated on regular intervals, say annually, and updated should there be material changes.

Damage to cargo by Fire unless caused by the actual fault of the Carrier is an exclusion provided under both the Hague and the Hague Visby Rules under Art IV (2b). However, in order to avail of the exclusions, the Carrier would need to prove that they fulfilled their obligations under Art III (1) i.e. exercise due diligence at the beginning of the voyage to make the vessel seaworthy. The question would therefore be whether failure of the Carrier to conduct such additional checks would be considered as a failure to “exercise due diligence” such that they lose their entitlements to exclude liability. Additionally, whether the failure to conduct such checks would also be considered as being “reckless” such that the Carrier also lose their entitlement to limit liability as provided in Art IV(5e) of the Hague Visby Rules. Given the potential exposures, we believe that it would be appropriate for liability insurers to make it a condition that their Insured’s/ Members conduct background searches with their contractual parties as a pre-condition of cover for such losses.

The shipping industry must create awareness of the issues arising from the carriage of mis-declared cargo. Frequently, instances of such mis-declarations are being swept under the carpet and are not publicised given that they result in adverse publicity. We submit that it would be preferable to have a “name and shame” register so that participants in the Shipping Industry are aware of unscrupulous shippers / participants and avoid dealing with such parties (some of the freight forwarding associations publish such a list to their members and perhaps it is time to have this list published by an independent body). Additionally, the affected parties must pursue the parties engaging in such practices to the extent allowed under law.

If Carriers are not directly dealing with the cargo interests but through intermediaries, then the Carriers must conduct a background search on the intermediaries and ensure that they (intermediaries) are jointly and severally liable for any mis-declaration of cargo, say by contracting on terms which allow for this. The Carrier must also make it a pre-condition that in order to accept the intermediaries bookings, they (intermediaries) must have suitable liability insurance.

To conclude, the thoughts which we have set out are indeed not novel and could be accomplished easily. The question remains in the will and the details i.e. will the industry react to the growing challenges posed by mis-declared cargo and deal successfully with it or continue to witness losses with such increasing regularity? Only time will tell on how this scourge has been effectively dealt with.